The weighted index on the Taiwan Stock Exchange closed down 88.25 points, or 0.92 percent, at 9,439.29, after moving between 9,412.48 and 9,528.70. Turnover totaled NT$106.16 billion (US$3.54 billion) during the session.

Financial Sector Continues Gain

While the financial sector continued to move higher amid optimism toward earnings in the second half of the year, the gains were not strong enough to help achieve a turnaround in the broader market by the end of the session, dealers said.

Market sentiment remained cautious as investors kept a close eye on the ongoing earnings reporting season, which will end in mid-August, while many of them stayed on the sidelines ahead of the U.S. Federal Reserve's next policy meeting, dealers added.

The market opened up 7.55 points at the day's high, but after the index briefly breached the 9,500-point level, investors started to pocket their gains by unloading high-tech stocks, and the selling continued until the end of the session, dealers said.

"The 9,500-point mark remained a stiff technical barrier on the local market. I think the market needs some time to consolidate before jumping over the technical hurdles ahead of that level," Concord Securities analyst Kerry Huang said.

"Today's selling was concentrated in the electronics sector, which had gained sharply in recent sessions amid optimism toward the peak season in the third quarter," Huang said "The losses, however, were largely technical in nature as their fundamentals remain sound."

High-tech Sub-index Down 1.65%

The electronics sub-index closed down 1.65 percent and accounted for almost 70 percent of Friday's total turnover, driving the broader market lower, Huang said.

Among the falling electronics blue chips, Taiwan Semiconductor Manufacturing Co. (台積電), the most heavily weighted stock on the local market, dropped 1.60 percent to close at NT$123.00, while Hon Hai Precision Industry Co. (鴻海精密), which assembles iPads and iPhones for Apple Inc., shed 2.26 percent to end at NT$108.

Smartphone camera lens supplier Largan dropped 7 percent, the maximum daily decline, to close at NT$2,300, largely on foreign institutional selling that took advantage of its recent upturn. But Largan remained the most expensive stock on the local market.

TPK Holding Co. (宸鴻光電) also shed 7 percent after the touch panel maker gave a cautious sales guidance for the third quarter, quashing market expectations of explosive sales growth in the quarter.

At an investor conference Thursday, TPK forecast flat quarterly growth, or at best a 5 percent sequential increase, in its consolidated sales for the third quarter, citing decisions by its customers to postpone the launch of their new products.

"Many investors preferred to retreat from the trading floor until the Fed policy meeting next week," Huang said. In addition, the current earnings reporting season has given investors a reason to be on guard. I expect the market to suffer more losses but gain some technical support at around 9,300 points in the near term."